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Paying For Empty Piggy Banks

|Includes:GNI, Gramercy Property Trust, Inc. (GPT), TMF, WHX

2013 has been a year defined in part by a mania for positive carry at any cost. We tried to exploit this mania in a number of ways - buying up assets that had no yield going into 2013 but a yield by 2014 (such as GPT common and preferred shares) and shorting expensive yield (such as TMF). Another way is via securities that are essentially only yield, that pay out distributions but have no underlying principal. These can be especially interesting because they show up on screens for high yield and are often purchased by investors who are unfamiliar with the specifics of their terms.

One such investment idea was Whiting USA Trust I (NYSE:WHX). It is the equivalent of owning a dividend without owning an underlying company. In this case, holders were willing to pay more than the expected value. Here is what has happened since then:

WHX will probably pay out about $3 and then will expire worthless in 2015. At today's market price of around $5, holders are paying a cost net of distributions of around $2 for an empty, broken piggy bank. It is entirely a creature of stock screens, since it screens well for yield. As WHX reverts to making sense, are there other such opportunities before the positive carry mania comes back to Earth? Yes. Great Northern Iron Ore (NYSE:GNI) may also be worth looking at.

GNI currently costs about $75 but that is far from its value. The trust will expire worthless when the clock strikes midnight on April 5, 2015 after quarterly payouts that will total around $20. Here is what that investment idea has done so far:

Both WHX and GNI are expensive, but GNI appears to have further left to fall before they expire. Want the equivalent of yield but also want to be on the right side of value? Then you may consider the following: writing WHX Jan $5 calls for $0.10 and their March $5 calls for 0.20. GNI is more difficult to short than it has been at various times in the past. However, if you manage a trust account for an ex-wife or otherwise have some reason to want to lose a significant amount of money, buy GNI. Once the distributions are done, you will have paid a substantial amount of money for another empty piggy bank.

Stocks: GPT, TMF, GNI, WHX